Car manufacturers are among the largest industrial victims of the worldwide coronavirus pandemic. In the past three months, they have experienced factory shutdowns and claimed destruction as the global health crisis has left some of the weakest players in dire financial straits.
As economies reopen and investors turn their attention to cyclical stocks, including automakers, it is useful to know which producers are well positioned to successfully exit the recession.
In this post, we will focus on the two largest US automakers, Ford (NYSE 🙂 and General Motors (NYSE :), to understand which stock is a better turnaround game in the current environment.
Ford: capital tightening and capital preservation
Even before the last crisis, Ford faced some serious challenges. After many years of rising sales, aided by the robust global economy and strong consumer interest, the automaker faced strong headwinds as the demand for sedan cars declined. Last year it fell by more than half.
The company decided to leave the arena for smaller cars and instead focus on SUVs and trucks in the United States, while also accelerating efforts to rapidly move electric and electrical markets. to enter self-driving vehicles. Last year, it announced it will spend $ 900 million to build electric and self-driving cars at the Flat Rock factory south of Detroit.
But these moves have not revived the precipitated inventory, much of which has been trading below $ 10 in the past two years.
After dropping to $ 3.96 during the March market crash, Ford's stock is now trading at $ 7.24 from yesterday's close.
Management believes that the stock will improve from here after the company has managed to keep money and avoid bankruptcies during the current crisis. During a webcast of his annual meeting last month, executives said Ford tightens the belt while also freeing up capital for key programs, including a redesigned F-150 pickup and several new electric models currently in the works.
"We feel very good about our plan," said Bill Executive Jr., Ford's executive chairman. "Management remuneration is strongly tied to our shares, so it is in everyone's interest to get our share price back up."
Wall Street analysts, however, are not very confident about this turnaround plan. Out of a total of 24 analysts who cover Ford shares, only 4 have a purchase value on equity, with an average price target of $ 5.67.
GM: Strong Cash Position
Unlike Ford, GM is in a much better financial situation to deal with the disruption to industry caused by COVID-19. The latest evidence of this power came last month, when the Detroit auto maker exceeded analyst expectations.
What helps GM are the company's redesigned large pickups along with CEO Mary Barra's restructuring plan, aimed at removing the automaker from money-wasting markets.
GM & # 39; s full-size episodes increased by 27% in the first three months of the year, with government interruptions only disrupting the last few weeks of the quarter. Chevrolet Silverado and GMC Sierra trucks also made strong sales.
GM Shares have withstood recent sales pressures much better than Ford Shares.
From the March low, the stock has risen 52% and is currently trading at $ 29.86 as of Tuesday's close. Of the 24 analysts who cover GM, nine have a buy score on the stock, while 13 recommend a hold, with an average 12-month price target at $ 33.94.
To preserve cash, GM also suspended its dividend and share buyback program and increased borrowing to $ 33.4 billion in cash, which is expected to support the company in this weak working environment.
In the long term, GM is also better prepared to face the challenges of switching to electric vehicles. GM has been one of the most aggressive automakers when it comes to electrifying its line-up. It currently only sells one EV in the United States, but develops more than 20 plug-in models, including a Cadillac crossover and a Hummer pickup. Both will debut in the fall of 2021.
Bottom Line
When it comes to investing in traditional American automakers, GM is certainly on a firmer footing than competitor Ford. The company's strong cash position, better product line and the aggressive move to add EVs to its fleet make General Motors shares a better buy than Ford.
